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SAMIL’s Q2 performance was muted (margins down by 52bps QoQ to 8% vs. our est. of 8.8%), affected by seasonality and one-offs (labor strikes in North America, one-time costs for restructuring some Europe plants). We continue to believe that cyclical recovery in global automotive production (with markets well below their previous highs) and higher wallet share from premiumization and electrification (given SAMIL’s engine-agonistic offerings) will continue to drive healthy 15% revenue CAGR over FY23-26E. We cut FY24E EPS by ~9% (on the Q2 margin miss and elevated interest cost run-rate), with FY25E-26E EPS largely unchanged. We retain BUY on SAMIL, with revised SOTP-based TP of Rs110 (assign 27x/14x/24x rolled over multiples on FY26E to standalone/SMRPBV/MSUMI operations; previous TP: Rs107/share)

Samvardhana Motherson International: Financial Snapshot (Consolidated)

Muted Q2 affected by seasonality, one-offs

Consolidated revenue grew ~28% YoY to Rs234.7bn (largely in-line) vs. ~4% global light-vehicle industry production growth. Production was affected by annual plant shutdowns of OEM customers in Europe due to summer holidays as well as temporary hit in North America due to labor strikes. EBITDA margin declined by ~52bps QoQ to 8% (Emkay: 8.8%) on the back of ~30bps lower gross margins and increase in other expenses. There was an exceptional charge to the tune of ~Rs2.5bn in respect of provision for expenditure to be incurred for phased operational restructuring of certain units located in Europe; also, finance costs were partly higher on account of impact of loss on net monetary position with respect to subsidiaries located in a hyperinflationary economy in Argentina (~Rs1.3bn net of interest income). Adjusted PAT grew ~39% YoY to Rs4.5bn (Emkay: Rs.6.5bn). Net debt stood at Rs134bn, up ~Rs51bn QoQ led by ~Rs38bn for payouts for transactions closed during the quarter.

Earning call KTAs

1) Automotive booked business (i.e., sum of lifetime sale value of orders yet to start production and orders currently under production) rose to USD77bn vs. USD69bn as of Mar-23; share of EVs within this stands at 22%. 2) SAMIL has announced 15 acquisitions in the past year; expects these to add ~USD2.6bn to revenue (on net basis). 3) The business environment continues to offer several opportunities for further acquisitions; SAMIL’s ‘last man standing strategy’ is playing out well. 4) Raw material/energy prices have largely stabilized at elevated levels; however, wage inflation and higher interest rates are still posing challenges; most of the wage inflation has been factored into the current run-rate; Company remains in discussion with customers for sharing of inflationary cost structures. 5) Capex guidance has been revised up, to ~Rs45bn (+/- 5%; earlier guidance: ~Rs33bn); to support capex in newly-acquired assets and growth in emerging markets (number of new facilities in India increased to 10 vs. 6 announced earlier). 6) Interest cost run-rate to be ~Rs3.2-3.4bn.

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